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Callahan: Channel Surfing Hurt Malone

5/12/2002 8:00 PM Eastern

The fatal flaw in Liberty Media Corp. chairman John Malone's quest to acquire cable systems in Germany wasn't a matter of pricing or business strategy.

The problem boiled down to Liberty's failure to go through the proper channels, Callahan Associates president and founder Richard Callahan opined during a conference here Sunday.

Speaking at the Multichannel News International
Summit at the National Show, Callahan said Malone's decision to meet with German Chancellor Gerhard Schroeder to make his case — rather than going through the German Cartel Authority — proved to be his undoing.

"The problem is, the German antitrust authority is independent, nobody tells them what to do," Callahan said after accepting MNI's Grand Prix award. "John [Malone] didn't realize when he came in through the top — Schroeder — he was intimidating the guy who runs the Cartel office."

Liberty had planned to buy about 3 million cable subscribers in six German states from German telephone giant Deutsche Telekom AG, for $4 billion.

After several months of regulatory review, the German Cartel Office rejected the Liberty bid — mainly because of Liberty's refusal to provide switched-circuit telephony service, in competition with DT. Liberty had planned to offer digital and high-speed data service in Germany, but wanted to wait until lower cost Internet-protocol technology was available before providing phone service.

That refusal backed German regulators against the wall, Callahan said.

"The head of the Cartel office, his world is full of lawyers dealing with antitrust issues," Callahan said. "How is he going to explain that he is facilitating the sale of a telephone company's properties to the one guy who doesn't want to offer telephone service?"

Callahan founded U S West Inc.'s cellular and cable communications businesses. As president of U S West International, he created cable and telecom companies that provided services to 3 million customers in 18 countries. He was also a co-founder of Telewest plc, the second largest cable operator in the United Kingdom.

He formed Callahan Associates in 1996 and today has 8.1 million cable subscribers in Spain, Belgium and Germany.

Callahan called the secret to his success a simple one. "Ever since I graduated from grade school, I've been a team guy," he said.

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